There may be some contagion in Asia at the fall of SVB, but that could be a warning
HANGZHOU, CHINA – MARCH 12, 2023 – Photo taken on March 12, 2023 shows the logo of SPD Silicon Valley Bank in Hangzhou, Zhejiang province, China.
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Analysts say the collapse of Silicon Valley Bank is unlikely to have a major impact on Asia’s collapse, but one says it could be seen as a “warning” – especially for economies that have not raised interest rates strongly.
China and Japan have bucked the trend as global central banks raise rates – with the People’s Bank of China keeping its key lending rates unchanged, while the Bank of Japan kept interest rates unchanged negative of -0.1%.
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On Monday, markets in China traded higher, while Japan’s Topix index led a broader sell-off in Asian morning trade. It came after US regulators announced measures to stem systemic risks from the collapse of Silicon Valley Bank.
“In the case of China and Japan, the difference in monetary policy may not lead to a similar crisis but is a warning to policymakers in the two influential economies,” Tina Teng, markets analyst at CMC Markets told CNBC in an email.
Teng said the response in Asian equities — venture capital-focused banks, in particular — will depend largely on “how they manage their interest rate risks to those countries that have similar problems.”
This morning’s announcement by the FDIC and the Fed will be a good way to prevent the fallout from the failure of the Silicon Investment Banks, especially for the broader economy.
“Credit risks are probably the main problem facing Asian banks against the backdrop of a bleak economic outlook and declining consumer demand,” she said.
The latest measures announced by US regulators could be a way to further contain the risk of infection, said IG analyst Tony Sycamore.
“This morning’s announcement by the FDIC and the Fed will be a good way to protect the fallout from the failure of the Silicon Investment Banks, especially for the broader economy,” he said, adding that he expected to fall in the category.to deepen it much further.
“I expect markets to move on quickly and focus on the broader macro issues this week, including tomorrow night’s inflation report and the upcoming FOMC report,” said Sycamore.
No major spills are likely
At the same time, Moody’s Investors Service said that the collapse of SVB is unlikely to affect Asian banks, since their investments are mainly in loans instead of Treasurys.
“If you look at the typical loan-to-investment ratio in Asia, it’s about 90%, so most investments are invested in loans,” said a senior executive. Credit Moody’s Eugene Tarzimanov to CNBC’s “Squawk Box Asia.”
“It is clear that banks invest in government securities – local bonds, foreign bonds, but that sector is not that important,” he said.
While several companies within Asia’s venture capital and technology start-up sector are familiar with Silicon Valley Bank, few have openly admitted that they have seen significant losses from SVB’s bankruptcy.
SPD Silicon Valley Bank, a joint venture between Shanghai Pudong Bank and Silicon Valley Bank sought to reassure investors over the weekend and said its operation was “independent and stable .”
The bank said in a statement on its website that it had “always operated in a sustainable manner in accordance with Chinese laws and regulations, with a standard regulatory framework and an independent balance sheet.”
‘Choosing to ignore’
Hong Kong markets led gains along with indexes in mainland China on Monday, with the Hang Seng Index overcoming 2%.
The market is “choosing to ignore” potential problems while taking steps to contain more risks from SVB’s collapse, said Hao Hong, chief economist at Grow Investment Group to CNBC in an email.
He acknowledged that “implementation may face obstacles from the best way to guarantee a portfolio of financial bonds that is now defined as collateral for borrowing from the special lending facility established by the Fed – but for now, the market chooses to ignore these technical details. .”
For China’s growth, he stressed that financial data will remain the main indicator, and pointed out that the economy saw a record in loans for the first two months of 2023.
While equities continue to see volatility, Goldman Sachs’ Asia-Pacific chief economist, Andrew Tilton, said the collapse of SVB is unlikely to have a major impact on the region’s macroeconomic outlook.
“To the extent that regulators deal with this relatively quickly and it does not spread to additional groups beyond those that have been noted so far, we are not as likely to see a significant impact on Asia’s growth outlook,” Tilton told CNBC. “Squawk Box Asia.”
“We still expect growth of 5.5% for China this year, mostly driven by the reopening and perhaps less sensitive to this particular issue,” Tilton said.
— CNBC’s Lim Hui Jie and Sumathi Bala contributed to this story.